The Consumer Financial Protection Bureau (CFPB) has released a published edition of Supervisory Highlights that describes the agency’s recent efforts to eliminate junk fees paid by mortgage servicers, in addition to other illegal practices.
CFPB investigations discovered servicers charging illegal junk fees, such as prohibited property inspection fees; sending false warnings to homeowners; and breaking loss mitigation standards that help struggling borrowers stay in their homes. In response to the CFPB’s findings, financial institutions returned junk fees to borrowers and discontinued illegal activities.
The release of the mortgage servicing examination effort expands on previous CFPB test work to prevent junk fees in the mortgage servicing and other consumer financial sectors. In October of last year, the CFPB revealed that its examination work from February to August of 2023 resulted in a $140 million return to consumers for illegal junk fees in the areas of bank account deposits, car loan servicing, and international money transfers. Since then, the CFPB’s regulation of junk fees has resulted in almost $120 million in extra junk fee refunds for bank account deposits.
“Homeowners cannot just simply switch providers if their mortgage servicer charges them illegal junk fees,” said Rohit Chopra, CFPB Director. “Since mortgage borrowers are captive to a company they never chose to do business with, we are working hard to detect and deter violations of law.”
By definition, mortgage servicers are companies that, among other things, handle mortgage payments and manage mortgage accounts. They play an important role in assisting homeowners with payments, including supporting mortgage borrowers in obtaining repayment options when they are experiencing financial difficulties. A mortgage servicer is hired by the lender or investor that owns the mortgage, not the homeowner. Residential mortgage servicers presently manage over $13 trillion in mortgage balances.
Over the last few years, the CFPB has focused on combating illegal junk fees in a variety of consumer financial markets. Most recently, the CFPB released a final rule that, if in force, will lower credit card late fees by more than $10 billion annually. The CFPB has also proposed a rule that would save consumers more than $3.5 billion in overdraft fees each year, as well as addressing junk costs on foreign money transfers. Overdraft and non-sufficient funds fees have decreased by more than $6.1 billion since the CFPB began investigating garbage fees.
Key findings from the CFPB’s edition of Supervisory Highlights include mortgage servicers:
- Illegally charging and obscuring fees: Mortgage servicers charged homeowners prohibited and unauthorized fees. These included prohibited fees for property inspections and late fees that exceeded amounts allowed by their mortgage loan agreements. Mortgage servicers also failed to explain the reasons for fees by not describing them adequately on statements.
- Keeping homeowners on the hook for fees during COVID-19: During COVID-19, many servicers used a streamlined process to determine repayment options for struggling homeowners. Some servicers failed to waive late fees and penalties, as required.
- Missing deadlines to pay property tax and home insurance: Mortgage servicers that accepted or required money from borrowers to pay taxes and insurance failed to make those payments in a timely manner, which caused some borrowers to incur penalties. Servicers only took responsibility for those penalties for missed on-time payments if homeowners submitted complaints.
- Deceiving homeowners and failing to properly evaluate them for repayment options: Some servicers sent notices to homeowners in financial distress that stated they had been approved for a repayment option. In fact, no final decisions had been made, and some of the homeowners were ultimately rejected. Examiners also found servicers sent some homeowners false notices saying that they had missed payments and should apply for repayment options. Servicers also improperly denied requests for help and failed to evaluate struggling borrowers for repayment options as required under the CFPB’s mortgage servicing rules.
Mortgage servicers are responding to the CFPB’s findings by making adjustments to their policies and procedures. For the fee-related findings, servicers are compensating homeowners, including refunds. The CFPB has also indicated that it is working to address additional anticompetitive mortgage fees, such as those associated with closing costs.
To read the full report, including more data, charts, and methodology, click here.
